Question

Table 12-1 and Table 12-2 Paul and Donna Kelsch are planning a Mediterranean cruise in 3 years and will need $5,500 for the trip. They decide to set up a "sinking fund" savings account for the vacation. They intend to make regular payments at the end of each 3 month period into the account that pays 6% Interest compounded quarterly. What periodic sinking fund payment in s) will allow them to achieve their vacation goal? (Round your answer to the nearest cent.) $ 15. [-/1 Points) DETAILS BRECMBC9 12.111.016. MY NOTES ASK YOUR TEACHER Solve by using the sinking fund or amortization formula. (Round your answer to the nearest cent.) Sinking fund payment in S) Sinking Fund Payment Time Nominal Interest Future Value Payment Frequency Period (years) Rate(%) Compounded (Objective) s every 3 months 6.0 quarterly $7,000

Answer 1

To achieve their vacation goal of $5,500 in 3 years, the Kelsch's should make periodic sinking fund payments of approximately $308.57 using the formula for sinking fund calculation.

Step-by-step explanation:

To calculate the sinking fund payment, we can use the sinking fund formula:

S = (P * r * (1 + r)n) / ((1 + r)n - 1)

Where:

• S is the sinking fund payment
• P is the future value or goal amount ($5,500)
• r is the interest rate per period (6% divided by 4)
• n is the number of periods (3 years divided by 3 months)

Plugging in the values, we get:

S = (5500 * (0.06/4) * (1 + 0.06/4)3 * 4) / ((1 + 0.06/4)3 * 4 - 1)

S = 308.57

So, the periodic sinking fund payment should be approximately $308.57.